The Economic Importance of Electronic...

The Economic Importance of Electronic Networks:Assessing the Micro-level Evidence Base

by

Robin Mansell and Lynne Nikolychuk *

Interdepartmental Programme on Media and CommunicationLondon School of Economics and Political Science

Final Report

26 August 2002

A report prepared for the Prime Minister’s Strategy UnitReview of Electronic Networks, Cabinet Office

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Executive Summary

There is evidence to suggest that the UK economy may be failing to capture the fulleconomic benefits of investment in information and communication technologies(ICTs). If this is occurring, the goal of becoming a world leader in the knowledgeeconomy will be jeopardised. Results, based on macro-economic analysis, do not yield aclear picture. The additional evidence available from this study, at the micro-level,commissioned by the Prime Minister’s Strategy Unit, sheds further light on the situation.

A review of UK case studies, and those conducted elsewhere in Europe, detects some ofthe factors that influence the diffusion pathways of ICTs and the efficiency andeffectiveness of their use. The case study material is supplemented by information fromthe Office of the E-Envoy, the Office of National Statistics (ONS), and other onlinesources. The analysis of key factors focuses on the experiences of private sector firms,public sector organisations, and households and individuals.

Improving ability to take advantage of ICTs is expected to have a strong positive impacton economic growth. The micro-level evidence provides insight into whether ICT usagepatterns are consistent with expanding network capacity. Building this capacity to enableall potential user groups to gain full economic advantage is not straightforward. The ICTdiffusion process embodies many factors that are difficult to predict. These factors canaccelerate or slow the ICT adoption process and influence whether or not it will produceexpected economic gains.

A significant factor is the system features of ICTs. If key components of the ICTsystem are relatively immature, positive economic impacts as a result of ICTinvestment are unlikely to occur, or to be as extensive, as expected. The systemfeatures of ICTs, i.e. the interactions between the technical and social components of thesystem, are crucial in achieving ‘take off’.

The learning process is another key differentiating factor in determining the speed anddirection of ICT diffusion and whether it will yield positive economic impacts.Deficiencies in the skills and competency base for applying ICTs can slow the diffusionprocess and reduce the economic impact of investment. A key issue for the UK iswhether there is sufficient investment in the ICT skills and competency baseacross all user groups, and especially smaller firms.

The benefits of ICT investment are mixed. Many reported experiences are belowexpectations. The firms that report positive impacts have invested considerably inlearning new organisational processes and work practices. Likewise, for public sectororganisations, the case study evidence points to the importance of breaking downorganisational change barriers and of the time needed to achieve positive outcomes. Thekey message is that positive ICT impacts arise from: 1) concurrent investment inlearning, 2) strategies to reduce organisational change costs, and 3) measures thatenhance the perceived safety (privacy and security) of networks and online transactions.The extent to which ICT user groups move up their respective ‘e-adoption ladders’ verymuch depends on how these factors, in combination, are deployed.

Our assessment suggests that policy measures are needed to reinforce thedemand side of the ICT market. Priority areas include:

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• Learning for skills and competency development aimed at breaking downentrenched attitudes and modes of behaviour that lead to resistance to ICT use.

• Reducing constraints that inhibit development of a fair and efficient e-servicedelivery market. These constraints relate to access to learning as much as toaccess to technology and ability to pay.

• Monitoring and assessing economic impact as a result of ICT investment usingmethods that capture the micro-level experiences of users.

Learning opportunities are particularly important in the following areas:

• Encouraging the ‘peer-to-peer’ model of content creation and exchange alongsideexisting, and evolving, business models. The aim should be to widen userparticipation to improve baseline experience levels.

• Promoting measures to build trust in the use of ICTs, including measures toassure users about network privacy protection and security.

• Reducing barriers to effectively managing intellectual property rights in digitalinformation, especially for smaller firms. Efforts should be made to balanceintellectual property rights protection and the maintenance of open digital spaceson the Internet.

Reducing constraints on e-service delivery markets requires:

• Ongoing, targeted regulation to encourage further competitive entry into somemarket segments. Interconnection models for mobile and fixed networks,between Internet service suppliers, and between the Internet and broadcasters, areincreasingly complex and may be better addressed through formal regulation ratherthan self-regulatory measures.

• OFCOM to operate as a regulatory agency that can offer comprehensive andinformed views on changing supply and demand patterns. OFCOM is well-positioned to signal changes in ICT usage patterns for electronic networks (andcontent).

• ICT development to avoid system failures that hold back opportunities for someuser groups to advance up the ‘e-adoption ladder’. Co-ordinating the use ofregulatory and non-regulatory measures to strengthen opportunities for learning,should assist in achieving this goal.

Monitoring ICT economic impacts is essential:

• More in-depth case studies could provide further insights into the learningprocess and the barriers and drivers of change in ICT consumption patterns.Existing case studies use inconsistent methodologies and only provide snapshotsof current practice. The evidence base for understanding how ICTs are evolvingwith individual needs and with learning experiences is very weak.

• Undertake systematic and methodologically sound, micro-level time series studiesof ICT use to monitor its economic and social impact.

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Table of Contents

Executive Summary ................................................................................................. iiTable of Contents.................................................................................................... ivList of Tables............................................................................................................ vList of Figures .......................................................................................................... v1 Introduction.......................................................................................................1

1.1 The Mico-level Evidence Base – Scope & Methodology...................................... 11.2 Structure of the Report............................................................................................... 2

2 Key Determinants of the Knowledge-driven Economy ................................... 32.1 The Structure of ICT Investment ............................................................................. 32.2 ICT System Features and the Diffusion Process.................................................... 42.3 Learning as a Key Factor in ICT Demand .............................................................. 42.4 Evolving Digital Information Exchange Models ................................................... 52.5 Learning as the Weak Link in the Diffusion Pathway ........................................... 6

3 Diffusion Pathways and ICT Impacts ............................................................. 73.1 Introduction ................................................................................................................. 73.2 Business Use of ICTs.................................................................................................. 8

3.2.1 Key Factors.............................................................................................................. 83.2.2 Case Study Evidence .............................................................................................. 93.2.3 Overall Assessment .............................................................................................. 10

3.3 Government Use of ICTs ........................................................................................ 123.3.1 Key Factors............................................................................................................ 123.3.2 Case Study Evidence ............................................................................................ 133.3.3 Overall Assessment .............................................................................................. 14

3.4 Household and Individual Use of ICTs................................................................. 153.4.1 Key Factors............................................................................................................ 163.4.2 Case Study Evidence ............................................................................................ 183.4.3 Overall Assessment .............................................................................................. 20

3.5 The Potential of ICT and its Impact ...................................................................... 214 Policy and Regulatory Priorities..................................................................... 22

4.1 Introduction ............................................................................................................... 224.2 Learning for Skills and Competency Development ............................................. 234.3 Reducing Constraints on E-service Delivery Markets ......................................... 244.4 Monitoring and Assessing ICT Economic Impacts............................................. 25

5 Conclusion...................................................................................................... 25Bibliography........................................................................................................... 27Annex A: ICT Diffusion and Growth Rates........................................................... 34Annex B: Reported Impacts of E-Commerce at the Sector Level......................... 36Notes ...................................................................................................................... 38

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List of Tables

Table 1 Network Connectivity and New Services.................................................................... 2

Table 2 Importance of Key Factors in ICT Use for Private Sector Firms ......................... 11

Table 3 Importance of Key Factors in ICT Use for Government ...................................... 15

Table 4 Demographic Distribution of Homes with Internet Access .................................. 16

Table 5 Importance of Key Factors in ICT Use for Households/Individuals .................. 20

List of Figures

Figure 1 ICT Spending on Public Administration in EU Member States, 2000................ 12

Figure 2 Barriers to Personal Internet Use .............................................................................. 19

Figure 3 Network Infrastructures in Western Europe vs. United States, 2001 ................. 34

Figure 4 Western European IT Market Annual Growth, 2001-2003 (%)........................... 35

Figure 5 Western European Telecom Market Annual Growth, 2001-2003 (%)................ 35

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1 Introduction

No other technology, with the possible exception of biotechnology, displays the promiseof information and communication technologies (ICTs). These technologies aredistinguished by their ubiquity and by the varied aspirations for their use. It is crucial toconsider how these technologies can most usefully be applied to achieve the expectedeconomic benefits.

Investment in electronic networks that rely on digital ICTs is expected to have a majorand positive impact on the UK economy. However, the evidence base that is needed tomeasure this impact is not very robust. In early 2002, the London Business School(LBS), commissioned by the Performance and Innovation Unit,1 prepared a reportreviewing existing evidence on the impact of ICTs on labour productivity and economicgrowth, and examined the applicability of these results to electronic infrastructure andbroadband in particular.2 The LBS report concluded that differences in the definitions ofICTs and in the theoretical and methodological approaches employed in existing macro-economic research, together with data deficiencies, make it difficult to ascertain whetherthe UK is failing to capture the full benefits of ICT investment.

The UK government is committed to ensuring that a favourable environment exists topromote the spread of electronic networks. The overall objective is to ensure that theUK is a world leader in the knowledge economy.3 The challenge is to establish policyand regulation that encourage investment in electronic networks to meet the needs of allgroups in society, including private sector firms, public sector organisations, andindividuals. This report examines the micro-level evidence of ICT impacts, andelectronic networks in particular, in order to inform developments in policy andregulation.

1.1 The Mico-level Evidence Base – Scope & MethodologyThe micro-level evidence-base on ICT impacts can be examined to indicate whetherpolicy or regulatory measures might help to create incentives for more effective andefficient use of electronic networks. The focus is on existing micro-level research thatassesses how the expected benefits of ICTs may accrue to different user groups and filterthrough the economy as productivity gains.

Electronic networks are defined for the Strategy Unit’s project to include:

… all the different networks in the UK that offer connectivity, so thatinformation (voice, data and video, etc.) can be transmitted to and from multiplepoints, including a return path from the end user to the originator.4

At the micro-level, it is difficult to separate electronic network developments(infrastructure) from the services that are delivered. The definition of ICT that isemployed in most micro-level case studies encompasses varying combinations ofcomputing and telecommunications hardware, applications software, and services. Thisstudy focuses mainly on those applications that involve the use of digital technologiesand information.5 In this report, we review selected case studies that assess ICT impactsin the UK and other European Union countries. Most of the case study material isdrawn from research undertaken by researchers based in institutes across Europe. The

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analysis complements insights gained from existing macro-economic studies. As far aspossible, we emphasise impacts linked, directly or indirectly, to the expansion ofelectronic network capacity.

Most micro-level evidence is qualitative and few systematic European case studies exist.Even fewer studies are designed to obtain self-reports on whether electronic networkuse, and broadband in particular, gives rise to productivity gains.6 However, the casestudy evidence does provide some insight into users’ perceptions of economic impacts.This material is supplemented by information from the Office of the E-Envoy, theOffice of National Statistics (ONS), and other reputable online sources.

The ICT impact assessment in this report is based on thematic coding. This procedureextracts common themes and factors from the literature that appear to influence thedirection and speed of ICT use and network investment. The application of thistechnique provides insights into:

• factors that may account for differences in ICT usage patterns among firms,households and individuals, and public sector organisations;

• factors that may account for positive economic and social impacts from thespread and effective and efficient use of digital ICTs;

• the extent to which positive economic impacts can be attributed to investment innew generations of electronic networks, increased connectivity, and theachievement of a critical mass in the marketplace.

Future demand for high bandwidth networks will continue to be influenced by changingpatterns of media and information consumption across different platforms.7 One of themost influential of these is the Internet. Table 1 sets out some of the areas in which thespread of electronic networks, including the Internet, is expected to have an economicimpact. The matrix is used as a framework for assessing ICT impacts in this study.

Table 1 Network Connectivity and New Services

Government Firms ConsumersGovernment G2G

e.g. CoordinationG2Be.g. Information

G2Ce.g. Information

Firms B2Ge.g. public markets

B2Be.g. e-commerce

B2Ce.g. e-commerce

Consumers C2Ge.g. tax procedures

C2Be.g. Price comparison

C2Ce.g. auctions

Source: Adapted from Coppel (2000), OECD Economics Department Working Paper.

1.2 Structure of the ReportThe next section of this report introduces the contribution of micro-level analysis to theunderstanding of ICT use and alternative diffusion pathways. These pathways affectwhether positive ICT impacts are experienced throughout the economy. The sectionalso identifies some of the key issues that must be addressed as the e-society isdeveloping. Section 3 assesses the empirical data for the user groups identified in Table 1.Section 4 considers the main policy and regulatory implications arising from the factorsidentified as influencing the economic impact of ICT investment. Section 5 provides aconclusion.

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2 Key Determinants of the Knowledge-driven Economy

2.1 The Structure of ICT InvestmentThere are differences in the rates of ICT spending and investment between theEuropean Union countries and the US. Throughout the 1990s, spending on hardware,software, communications equipment and other ICT services was less than 6 per cent ofEuropean Union GDP as compared to 8 per cent in the US. Similarly, investment inICTs accounted for 2 per cent of European Union GDP and nearly 3.5 per cent in theUS.8 The spread in both spending and investment between the European Union and theUS has increased over time. 9 These gaps in ICT spending and investment rates are notpresent in all European Union countries. The patterns in Sweden, the UK, and theNetherlands do not differ markedly from the US.10

Data comparing the penetration of network infrastructures in the US and westernEurope, and data showing information technology and telecommunication marketgrowth rates, are provided in Annex A. However, factors other than relative rates ofspending, investment and penetration must to be taken into account to examine why theeconomic benefits of ICTs may not be fully captured in the UK.

There are many initiatives to benchmark progress towards the knowledge-driveneconomy in Europe. 11 The Statistical Indicators Benchmarking the Information Society(SIBIS) project, for example, has analysed European country performance inimplementing the e-Europe action plan. This action plan is being integrated, withreasonable success, into the national plans of the UK, France, Germany, the Nordiccountries, and the Netherlands. The UK has made greatest progress in actions toimprove Internet access for schools and to encourage teachers to use new technologies.However, most countries, including the UK, show a lack of progress in promotingindustry-led codes of conduct for e-commerce, measures for life-long learning, and ICT-related training. There are initiatives in the UK to address these issues, but continuingpolicy effort is need to create an environment that stimulates demand for ICTinvestment.

Nationally-based efforts to monitor ICT impacts are in place.12 In the UK, the Office ofNational Statistics (ONS) is beginning to monitor micro-level impacts and to developnew indicators for the private sector, households and individuals. Together with datacollected by the Office of Telecommunication (Oftel) and organisations such as Nielsen-Netratings, these data make it possible to develop profiles of usage patterns.13 However,most existing indicators do not capture variations in the effectiveness and efficiency ofICT use. More work is needed to devise indicators that provide further understanding ofICT consumption patterns and related social and economic impacts.14 This requires afocus on the perceived effectiveness and efficiency of use.

A study of the determinants of economic growth in Europe suggests that,

… the problems that Europe faces in key areas such as growth, equality andemployment are all related to its failure to take sufficient advantage oftechnological advances, particularly the ICT revolution.15

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Improving capacity for taking advantage of the ICT revolution is expected to have astrong positive impact on economic growth. Micro-level evidence provides insights intowhether patterns of ICT use are consistent with improvements in this capacity.

2.2 ICT System Features and the Diffusion ProcessBuilding the capacity to enable all potential user groups to gain full economic advantagefrom ICT use (and investment in electronic networks) is difficult because of theunpredictability of the ICT innovation and diffusion process.

The pathways along which ICT demand develops are numerous.16 Time is required forusers to become accustomed to new ICTs and to develop a willingness to use them.This makes it difficult to specify precisely which ICTs (and electronic networks) will beneeded in the future.17 The diffusion pathway can be divided into three periods: theperiod of early adoption, the ‘take-off’ period, and the maturity phase. Various factorsmay accelerate or slow the ICT adoption process and whether or not it will produceexpected economic gains. A significant factor is the system features of ICTs. System features complicate the analysisof the likely diffusion pathway and its impact. 18 For example, the economic impact ofasymmetric digital subscriber line (ADSL) technology will be weakened if some part ofthe ICT system on which ADSL’s successful diffusion relies is immature. The other partsof the system include related technical and human, or social, components. Theirmaturity and their capacity to smooth the diffusion process are affected by users’experiences, skills, and the adaptability of existing organisational customs and practices.These factors and system features influence how ICT consumption patterns develop. The relationships between the ICT system components are influenced by positivenetwork externalities. Positive network externalities exist when the value of a technologyincreases as others decide to acquire the same, or a related, technology.19 Rapidly fallingcosts in some technologies, and new methods of using networks, are potential drivers ofinvestment in higher bandwidth networks. Market segments with a willingness and abilityto pay will receive earlier access to new networks and services. One result is that thetechnical components of an ICT system will diffuse and be adopted unevenly. Importantchanges in the human or social components that facilitate adoption will also occurunevenly. However, ICT diffusion and adoption pathways are not fixed. Government policy andregulation in a number of key areas can alter the speed and impact of ICT use. Forexample, encouraging investment in ‘always on’ networks is likely to boost demand forICTs, and lead to the ‘take off’ and ‘maturity’ phases of diffusion. This positivelyreinforces the ‘virtual circle’ needed to build human and organisational abilities alongsidetechnological capacity. If key components of the ICT system are relatively immature, thepositive economic impacts are unlikely to be as extensive as expected.

2.3 Learning as a Key Factor in ICT Demand Research on ICT diffusion and use often examines the impacts on different user groups.However, the system features of ICTs and their use, i.e. the interactions between thetechnical and social components of the system, are crucial in achieving ‘take off’. Thelearning process is a key differentiating factor. The effectiveness and efficiency of ICT

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diffusion pathways depend upon ‘the interplay of technological potential, commercialexploitation and socio-economic acceptance’. 20

Deficiencies in the skills and competency base for applying ICTs will slow the diffusionprocess and reduce the economic impact of investment. In Europe, there is a projectedshortfall of qualified people with information technology, electronics and communication(ITEC) skills to fill a projected 3.8 million new ITEC occupations by 2003.21 A key issuefor the UK is whether there is sufficient investment in the skills and competency basethat will be needed. 22

In the UK, the skills and competency profile in ICT employment areas is mixed.Employers are concerned about skill shortages and about the quality of graduatesavailable to meet demand. This is especially the case for smaller firms. The E-SkillsNational Training Organisation has developed a framework for measuring andbenchmarking ICT capabilities within organisations. It also undertakes initiatives toencourage public and private sector training. Nevertheless, the Institute of Directors(IOD) is calling for an increased focus on vocational education and training to addressskill shortages in the ICT area.23

Maximising opportunities for ICT-related learning has been associated with self-employed tele-working.24 The UK is in the mid-range in this area. Of all self-employedindividuals, 8.6 per cent are working as teleworkers. This contrasts with Sweden (22.2per cent), Finland (26.4 per cent) and Germany (11.4 per cent).25 All of these countriesare leading the UK in their Internet usage intensity.26 Outsourcing also has an impact onthe speed of ICT take-up because a skilled workforce is needed to retain higher valueadded ICT jobs in the face of competition from lower wage earning countries.27 The UKdominates in the European market for outsourced information processing services, andespecially in higher value information processing work.

These are two areas that can encourage widespread skill and competency building forworking in online environments. Both areas play a role in stimulating demand forelectronic networks and in ensuring that their use is productive. Learning is also a keydifferentiating factor in other parts of the ICT system.

2.4 Evolving Digital Information Exchange ModelsBusiness models for the supply of digital information impact on ICT demand patterns.During the Internet’s initial growth period, it was assumed that ‘peer to peer’ networkingwould favour content and information production tailored to small groups andindividuals. Under this model, everyone would become a content producer which woulddrive demand for higher bandwidth networks.

However, recent reassessments of the business models developing for the supply ofdigital content suggest that the point-to-multipoint content model will continue topredominate. For example, the Institute for Prospective Studies in Seville argues that,‘customisation of content may still be possible but it will be offered only if users arewilling to pay extra for it’. 28 In the near term, a ‘peer-to-peer’ model of digitalinformation supply is not likely to be the major driver of demand for ICTs. ‘Peer to peer’sharing of music, films and other entertainment files via the Internet may stimulatedemand for higher bandwidth networks, but mainly at the household level for leisure and

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entertainment purposes. It is unlikely that this model will overtake the business modeldriving the major content producing companies.

Further growth in the ‘peer-to-peer’ model should be encouraged so that it continues toflourish in the open spaces of the Internet. These activities offer good opportunities forlearning which will extend user participation. Encouraging production of smaller-scaleonline content by a variety of users, including small and medium-sized enterprises, willadvance ICT take-up.

Changes in copyright legislation are aimed at increasing the scope of protectingownership rights in digital information as ICTs proliferate.29 Securing information storedand transmitted over networks is also a central issue for the development of digitalcontent markets. The extension and strengthening of copyright protection createsmarkets for the sale of digital information goods and services. It also raises the usercosts for developing non-commercial uses of ICTs, many of which lead to enhanced ICTskills and competencies. The balance between intellectual property rights protection andthe development of open Internet spaces to encourage user learning is an importantdifferentiating factor for the diffusion pathway.

Learning is also a key feature for managing intellectual property rights in the ICTdomain. Legal advice is often needed to address issues in this area. This can createbarriers for smaller firms seeking to produce or to use digital content. 30 In the UK smalland medium-sized firms tend to be unaware of, or unconcerned about, the managementof digital information.31 Support for smaller firms in acquiring the necessarymanagement skills could reduce this barrier and boost incentives to exploit networkconnectivity at both firm and individual levels.

Learning processes are essential for encouraging practices that safeguard the protectionof personal privacy and enhance the security of digital information. Technical methodsto manage the boundary between the private and public lives of ICT users cannotsubstitute for social and legal choices.32 Advances in ICT use for storing and processingmessages create the potential for using aggregated data to protect national security andsecure commercial competitive advantage.

An overarching issue here is how learning progresses in a manner that encourages trust.Building trust in e-services within all ICT user groups is essential to stimulate demand.Trust in existing commercial models of information and content delivery, and inemerging ‘peer to peer’ models, continues to require learning experiences that are builtup as a result of using e-services.

2.5 Learning as the Weak Link in the Diffusion PathwayA wide range of factors can retard or stimulate the effective and efficient use of ICTs,especially when private sector firms, public sector organisations, and individuals are in arelatively early phase of the learning process. 33

Learning which supports skill and competency building is a key factor in the ICTadoption process. Empirical evidence on ICT take-up often simply measures accesslevels. However, it is necessary to assess how ICT use varies in terms of its efficiencyand effectiveness and its impact on the economy. To do so, we need to examine the

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different contexts of use and the extent to which they encourage the accumulation ofrequired skills and competencies.

The micro-level evidence from case studies provides insights into how ICT use isaffected by the learning process. Assessing the strengths and weaknesses of theselearning (skill and competency) processes and their impact on ICT use and demandpatterns is not always straightforward. Although considerable amounts of case studydata exist, many of these employ inconsistent methodologies. The results often involvelocal factors that confound the interpretation of causal links between learning processesand their impact on ICT use.34

The next section applies the framework set out in section 1 to examine the evidence ondiffusion pathways and the economic impact of ICTs that emerges from an assessmentof the case study evidence.

3 Diffusion Pathways and ICT Impacts

3.1 IntroductionMicro-level evidence provides a rich resource of information to examine the factors thatgive rise to alternative ICT pathways and differential impacts. These factors differ forprivate sector firms, public sector organisations, and households and individuals. Manycase studies provide indirect evidence of ICT impacts. These sometimes reportrespondents’ assessments of whether access to ICTs enables them to become moreeffective or efficient. This evidence provides some insight into how the main ICT usersegments assess the impact of ICT use. It also provides an indication of how ICT usemay change.

The analysis in this section reviews a reasonably large sample of case studies and othersources of micro-level data on the use of ICTs by private sector firms, public sectororganisations, and households and individuals. The focus is on impacts and reportedbarriers to, and drivers of, more effective and efficient use. For each user segment(firms, government, households and individuals), key themes are extracted from the data.

By 2003, it is expected that western Europe’s most active sectors in e-commerce andrelated ICT services, in order of importance, will be: financial services, discretemanufacturers, retail and wholesale traders, insurance, government, communications,transport, services, utilities, process manufacturers, health care and education.35

Developments in business-to-business (B2B), business-to-consumer (B2C) and business-to-government (B2G) services, based on the public Internet and on private networks,will create demand for ICT investment and increased network capacity. Whether positiveeconomic impacts are achieved depends upon how effectively and efficiently the newtechnologies are used.

In the following, we assess business use of ICTs (section 3.2). This is followed by anassessment of government use of ICTs (section 3.3) and household and individual use(section 3.4). Section 3.5 provides an overall assessment.

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3.2 Business Use of ICTsThere are many studies of the way industrial value chains are being affected by electronicnetworks, and specifically, by the implementation of Internet-enabled services.36 Themajority of case study research on firms and ICT use in the UK and most of westernEurope has been conducted at the sector level. The following accounts for over onehundred UK and European Union sector level case studies and a selection of firm levelstudies. Combined, these encompass the experiences of just over three thousand firms.37

3.2.1 Key Factors

In the UK, as in many OECD countries, most Internet sales are business-to-business(B2B) transactions, predominantly in the financial sector. Total e-commerce sales in theUK in 2000 amounted to £56.6 bn (2 per cent of total sales) of which the financial sectoris estimated to have contributed £43.74 bn (77 per cent). 38 The remaining sectors werewholesale, retail, catering, and travel (£7.61 bn or 13 per cent), manufacturing (£3.99 bnor 7 per cent), and computing and other business services (£1.28 bn or 2 per cent). Lessthan one-fifth of e-commerce sales were made to households, the business-to-consumer(B2C) segment of the market. For 2000, an estimated £10 bn worth of goods was soldto households, falling to just over £1 bn once sales in the financial sector are removed.

E-commerce transactions are increasing in value, but they are a small proportion of totalsales. Relative to the other OECD countries, Britain’s retail e-commerce performance isstrong.39 The B2C segment of the e-commerce market is expected to remainsubstantially smaller than the B2B segment at least until 2005 in Europe. 40 In the UK,the B2C segment is forecast to grow by 65 per cent to �43.4 bn and the B2B segment by68 per cent to �256 bn. This would establish the UK as the second largest EuropeanUnion ‘e-commerce’ country after Germany. 41

The growth of online transactions is influenced by the rate at which firms move alongthe diffusion curve. The 2001 e-commerce business survey for the UK shows that ICTusage intensity varies among firms according to their position on an ‘e-adoption ladder’.42

Large disparities exist in private sector firm ICT use.43

The majority of firms have adopted the basic uses of ICTs but very few have reachedmore sophisticated levels of usage. At the basic level of use, adequate learning to achieveeffective and efficient outcomes seems to be occurring. However, to experience greatereconomic impacts, firms will need to move further on the ‘e-adoption ladder’. The aimto get businesses ‘online’ in the UK was achieved by 2001 with 94 per cent of businesseshaving access to the Internet, but more effort is needed to build on this baseline.

The UK E-Commerce Awards Programme provides some indication that ICT take-uplevels are increasing among firms with less than 250 employees. Applications to theProgramme increased more than eightfold from 198 to 1,683 between 1998 and 2001. In2001, most firms applying were micro-businesses (993 or 59 per cent) operating at thelower end of the ‘e-adoption ladder’. Firms transacting via the Internet (201 or 12 percent) and those involved in practices designed to ‘improve or transform’ their businesses(237 or 14 per cent) accounted for a relatively small proportion of applicants.44 Althoughparticipation is small (0.5 per cent) in proportion to the total small and medium-sizedbusiness population (3.66 million45), these figures are impressive for their growth rate.

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To encourage firms to move up the e-adoption ladder, policy measures are needed.Network capacity bottlenecks and prices that discourage use of higher capacity networkswill slow the learning process. The business areas most likely to encourage moresophisticated use of electronic networks include purchasing, marketing and sales, andfinance. The UK ranks third in Europe in the purchasing sector, second in marketingand sales, and fifth in finance for the take-up of e-commerce. ADSL rollout is expectedto drive the further growth of e-business services.

3.2.2 Case Study Evidence

Sector level case studies in the UK indicate that the impact of ICTs on sectors and onfirms is strongly influenced by industry specific dynamics. These include inter-firmoperating practices and product characteristics. 46 European sector case studies alsoreveal mixed results in terms of reported impacts of ICT use. Firm level case studiesprovide greater detail on impacts, but there is even greater variation. Overall, theevidence confirms that technology per se is not the crucial factor in promoting moreeffective or efficient ICT use.

ICTs are tools that businesses can apply to achieve their aims. The most importantdrivers of firms’ decisions about ICT use are the business benefits they expect to achieve.The main expected benefits reported by firms as a result of increased use include:

1. Cost reductions accruing to firms;2. Increased transaction speed and reliability;3. Improved management capabilities;4. Improved collaboration capabilities;5. Stronger interdependencies within upstream and downstream markets; and6. Better customer relations management (CRM).

The case study evidence shows mixed results with respect to these benefits. Many firmsreport that they have yet to experience most of the benefits expected. Firms that reportpositive impacts generally have invested considerably in learning and organisationalchange strategies. The impact of the use of e-commerce,

… does not seem to depend greatly on the availability of or access to e-commerce technologies. Rather, it depends on the important material andhuman investments needed as well as reorganisation and the amount of timerequired to generate and circulate knowledge about how the new technologiesand systems work … hindrances and delays to entry are due more to the learningprocess, “second entry” strategies and investment in reorganisation than to theprice of hardware and communications.47

The case study evidence emphasises the importance of human investments,organisational change, and time to achieve the benefits of ICT investment. These factorsare particularly evident in the take-up of B2C e-commerce in the banking and financialservices sector. There is a lengthy period of consumer learning to build trust in onlineservices.48 The research evidence highlights barriers internal to firms as well. Effectiveand efficient use of ICTs are not likely to be achieved in the face of negative seniormanagement attitudes and a lack of appropriate in-house workforce skills. Pessimisticattitudes and negative experiences of some small and medium-sized enterprises also slowprogress up the adoption ladder.49 The role of ‘change agents’ in fostering trust and in

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providing customised training is vital for improving ICT adoption rates, especially amongmicro-businesses.50

In the B2C segment, too few online customers and insufficient development of secureservers are inhibitors to the growth of ICT use. The UK trails behind eight OECDcountries in the latter respect.51 The B2C segment may only be viable for goods andservices with high search costs and experience qualities. Generating trust through brandrecognition and providing adequate consumer protection are key drivers in this area.52

The need to build trust and confidence for e-commerce is emphasised in many casestudies. There are frequent illustrations of how difficult it is to achieve trust even when afirm has a strong brand reputation.53

One European investigation of online shopping concluded that, ‘the current problemson the supplier side relate largely not so much to technology, but rather to reliance onold infrastructure and business practices not designed and developed for trading in anelectronic environment’.54 Encouraging the spread of B2C e-commerce is an incrementalprocess that builds on users’ positive experiences. Some of the reported impacts of e-commerce in the case study literature for various sectors are highlighted in Annex B.

In some areas, e-commerce strategies may reduce opportunities for firms to participate inonline trading. If ICTs are used to create closed e-commerce systems for members ofbuyer and supplier ‘clubs’, firms that are excluded from the business value chains haveless incentive to use ICTs. In the transport and logistics industry large firms areimplementing e-commerce for key clients, but their Internet sites are mainly closed tofirms that are not members of their alliances or client base.55 Studies have shown that,‘…where there is an established basis of market power - i.e. where a dominant supplierand/or customer is in a position to motivate and control relationships in the value chain– e-commerce does not alter this arrangement significantly’.56

Firms that are not tightly linked into value chains often report that e-commerceparticipation is unlikely to have a positive impact on their businesses. ICT use to supporte-commerce is more likely to lead to ‘lock-in’ for smaller firms operating in markets fortangibles. Smaller firms may be forced to participate in e-commerce by other firms thatdominate the supply chain. In some cases they are forced into electronic trading as acondition of contract.57 Firms that are not involved in these relatively closed networksare expected to benefit from the use of e-marketplaces. Recent evidence suggests,however, that it will be some years before these Internet sites reach the mature phase ofdevelopment needed to serve as a strong stimulus for ICT investment.58

3.2.3 Overall Assessment

The most common factors reported in the sector and firm level studies accounting fordifferences in the impacts of ICT use, are clustered into the four themes as shown inTable 2.59

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Table 2 Importance of Key Factors in ICT Use for Private Sector FirmsFactors Firms Households/Individuals Government

Firms:

Learning

Cost

Safety

Technology

B2B: E-Commerce

High

Medium to Low

Medium

Low

B2C: E-Commerce

High

Medium

High

Medium

B2G: Coordination

Medium

Medium

Low

Low


Positive impacts of ICT use in terms of gains in effectiveness or efficiency arise from: 1)investment in learning, 2) strategies to reduce the costs of organisational change, 3)measures that enhance the perceived safety (privacy, security) of networks and onlinetransactions, and 4) the extent of advanced ICT use. The relative importance of thesefactors varies for firms, government, and household and individual users.

The positive impact of ICT use in the context of B2B e-commerce is extremely dependentupon whether learning occurs alongside the use of new technologies. The ‘high’importance of learning is linked to: 1) the need to increase applications skills at theindividual level, and 2) the need to encourage accepting attitudes to the use of ICTs.Smaller firms are more concerned about the cost of ICT implementation than with thecost of acquisition. Concerns about the type of technology may increase if B2B e-commerce develops without a parallel increase in the availability of bandwidth capacity.Safety issues are a ‘medium’ concern but could increase as businesses progress up the e-adoption ladder.

For B2C e-commerce the evidence suggests that learning is of ‘high’ importance. If learningis neglected and there is insufficient focus on user benefits, the economic impact of B2Ce-commerce developments is reduced. The growth of B2C e-commerce has been slowedby relatively low penetration of Internet access and by uncertainty about how the ‘shopwindow’ can be translated online. Technology is relatively more important in thissegment than in the B2B segment. In the B2C segment, concerns focus on developingeffective user interfaces. Cost and safety factors generally are ‘medium’ and ‘high’concerns, respectively, in this segment.

The case study evidence indicates that learning is a ‘medium’ concern for B2G e-commerce.However, substantial effort is needed to persuade firms, and especially smaller firms, toswitch from paper-based to e-government services. Factors relating to safety andtechnology are ‘low’ concerns as compared to concerns about the cost of capitalinvestment and business reorganisation. Firms also appear to be concerned aboutpressures on time if they move to new ways of transacting with government before thebenefits are clear.

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3.3 Government Use of ICTs

There are fewer case studies on e-government than on the development of e-businessservices. Even fewer studies focus on ICT use which encompasses all types of publicsector organisations. Most studies focus on national, rather than regional or local,government initiatives. In addition, there is little clarity in the literature as to thedefinition of e-government services.

3.3.1 Key Factors

E-government participation rates vary less among the European Union countries thanbetween these countries and the US. All European Union countries, except for Greece,are classified in the United Nations 2001 global benchmarking report as having ‘High E-Government Capacity’. 60 The UK has the highest index rating (2.52) of all EuropeanUnion countries, sixth from the US (3.11). The US is rated as the most e-enabled countryof the 190 UN members. This index incorporates an assessment of a country’s officialonline presence, its telecommunication infrastructure, and its human developmentcapacity. Overall, 2001 saw a greater increase in e-government service provision thanduring the previous five years combined. 61

The UK’s strong performance in this area can be attributed to its national strategy and toits level of ICT spending. The UK was one of the first countries to dedicate resources toestablishing a centralised, high-level government unit for advancing ICT use. Thisapproach appears to be more effective than the fragmented or ad hoc approachesadopted elsewhere. ICT spending in the UK on public administration is strong, relativeto its overall GDP size (see Figure 1).

Figure 1 ICT Spending on Public Administration in EU Member States, 2000

Source: (EITO) 2000

However, studies of ICT-based public services in Germany, Italy, Belgium, and Finlandsuggest that success is more likely in projects that begin from small-scale process

13

innovations and that are driven by the efforts of local administrations.62 The moresuccessful projects are implemented in parallel with regulatory and policy changes. Theevidence does not provide a basis for assessing changes in the effectiveness or efficiencyof service delivery. It does show that the learning curve to implement e-governmentservices is extremely long. It is also difficult to transfer knowledge about servicedevelopment from one locality to another.63

ICT use, in support of e-government services is expected to follow an e-adoption ladder.Benefits are expected to accrue to government and to users as progress is made to: 1)establish a basic official website, 2) extend the non-interactive website presence, 3)provide limited interactivity, 4) provide transaction capability, and 5) provide ‘one stop’interactive services.

Most governments, including the UK, are on the first rungs of this e-adoption ladder. Acensus of all central government sites in the UK in 2001 for the National Audit Officeshows 64

… some areas of considerable progress on basic features since 1999, and a fewtransactional capabilities developing. But there has been little progress yet onmore sophisticated electronic publishing or interactive features. A second studyundertaken of the usage of central departments’ Web sites shows that there aremarked variations between departments in the extent to which their Web traffichas grown, assessed against the background expansion of Internet usage in theUK. 65

Patterns of e-government provision vary across government segments. Across westernEurope, complete G2B transactional services are less widely available (20 per cent) thanin the G2G (35 per cent) and G2C (31 per cent) segments. As of 2002, Germany,France, Denmark, and Portugal have the most developed G2B markets. According to amajor survey, 66 European firms expect e-government services that will support theironline transacting and improve their competitive strength. The most important G2B e-services identified were online tax return services, followed by e-procurement,employment-related e-services, and information services.


The mechanisms that encourage or discourage the take-up of e-government services arevaried. G2B use is expected to lower costs and increase transaction speeds. Increasedease of use and promotion of services by government are also expected to promote take-up. The main G2B inhibitors are the slow take-up of digital signatures (20 per cent),security (20 per cent), the costs of replacing existing information systems (15 per cent),lack of infrastructure (10 per cent) and lack of broadband access (5 per cent). High costsand organisational barriers are also reported problems. UK case studies on HM Customsand Excise and the Department of Transport, Local Government and the Regions(DTLR) illustrate how these concerns, particularly regarding security and replacement orupgrading costs,67 apply to the G2B and G2C segments.

Developments in the G2C and G2G segments are expected to modernise government byenhancing the efficiency of service delivery and the effectiveness of government. ICTuse in these two segments is also expected to reshape the democratic process and toenable direct public service delivery to citizens. 68

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The potential for e-government to re-engage citizens in the political process and toreduce inefficiency in government bureaucracy is discussed widely in the literature. Someevidence suggests that e-government service development is being driven mainly bytechnology rather than by the needs of firms and citizens. For instance, research on ICTimplementation in local government in the UK suggests that too much emphasis is givento the functional application of service delivery. It is suggested that too little emphasis isgiven to the way that e-government services restructure the decision-making process.The design of e-services may be inconsistent with the aim of achieving increasedtransparency.69 However, some local government initiatives are integrating e-commerce,e-work and tele-democracy by involving users and technology designers in a positivecycle of learning.70 Overall, implementing ICTs in ways that involve users requireschanges in policy that are relatively slow and incremental.71

Citizens can be encouraged to use government web sites when G2C services are up-to-date, easy to access, accurate, and reliable. Attitudinal barriers include low expectationsof government and a lack of trust in government-based information. G2C use is alsohampered by the costs incurred by users to transfer to an e-government service and alack of clear evidence of user benefits. G2C e-services also need to be adapted so thatthey are integrated into citizens’ daily routines.

Studies show that ‘those who already use computers at home or at work are more likelyto be prepared to use new technology to deal with government’. 72 ‘The digital divide isnot so much a question of access but of education’. A major driver of effective andefficient use of e-government services is skill and competency development.73 Forexample, experience of developing virtual town halls in Germany shows the need todevelop electronic signatures, standardised platforms for online transactions, and user-friendly services.74

The G2G case studies suggest a common barrier to the efficient and effectivedeployment of e-government services. There is strong resistance to changingorganisational processes and work practices when ICTs are implemented. This isattributable to traditional organisational cultures and values and to weak demand andrivalry between service delivery channels.75 Rivalry in the public sector can hold back theuse of ICTs to support e-government services because of the perceived risk of jobdisplacement. A review of ICT use in the UK’s social security, health care and socialservices sectors suggests that ‘conflict between different elements of the (policy)community has hampered the government’s attempts to utilize ICTs in servicemanagement and delivery’.76 Positive ICT impacts will be limited or absent if publicservice workers resist changes in the way services are delivered.


The importance of the four main themes - learning, cost, safety and technology – isindicated in Table 3 for each of the user groups. The impact of e-government serviceson the economy depends on whether efficiency gains are achieved in transactions andwhether e-government services result in ‘joined-up’ government services.

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Table 3 Importance of Key Factors in ICT Use for GovernmentFactors Government Firms Household/Individuals

Government:

Learning

Cost

Safety

Technology

G2G: Co-ordination

High

Low

High

Low

G2B: Information

High

Medium

High

Medium

G2C: Information

High

Medium

High

Low


For G2G e-government services there is evidence of substantial change in recent years aimedat introducing ICT support. However, there is also evidence of continuing resistantattitudes and behaviours. These attitudes and behaviours limit the spread of e-government services and the rate of movement up the ‘adoption ladder’. Measures tobreak down organisational barriers are necessary for successful implementation. Localinitiatives also tend to be evaluated more positively in terms of impacts. Cost is identifiedas a ‘medium’ concern. Devices to ensure secure services are considered to be of ‘high’importance. Developments in this area could promote transacting online. Technologyper se is considered to be of ‘low’ importance. However, if technology is defined toinclude software, it may be a more important concern because of the need to replace orupgrade existing information technology-based systems.

Studies of G2B e-government services indicate that substantial changes are underway and thatresistant attitudes and behaviours also limit provision. Firms appear to be cost consciousbut there are growing signs of a willingness to transact electronically. Cheaper, quickerand safer solutions for conducting routine transactions with government, especially in thee-procurement area, are likely to drive growth in this area.

The progress of G2C e-government services relies on fostering an organisational culture ingovernment that is citizen-centred. Learning in this area is of ‘high’ importance andtraining for ICT use in government departments needs to reflect this. A lack ofconfidence and trust in government is a reported barrier to G2C e-services. Growthdepends on building a sense among citizens that e-government services are relevant totheir lives. E-government services must offer an efficient means of interacting with awide range of public services. Reducing the costs to users of a shift from off- to onlineservices and providing secure systems are more important for individuals than are thetechnology factors.

3.4 Household and Individual Use of ICTs

Case studies of the impact of ICTs at the household and individual levels are relativelyrare as compared to other areas. Micro-level data are available which suggest howInternet usage is spreading but it is difficult to assess direct economic impacts. Research

16

is needed on changes in the patterns of individual and household consumption of digitalservices of all kinds.

The evidence base for understanding how ICTs are evolving with individual needs andwith learning based on experiences with earlier technologies is very weak. The featuresof ICT use that are likely to be perceived as most effective or efficient from the citizen orconsumer perspective, or from the supplier perspective, are uncertain. This deficiency inthe evidence base needs to be addressed to reduce the risk of misdirecting investmentinto e-services that will not achieve a critical mass of users or bring the expected positiveeconomic impacts.

3.4.1 Key Factors

In the UK, as of April 2002, 55 per cent of adults had accessed the Internet for personaluse. Most adults access the Internet (99 per cent) via a personal computer (PC) in theirhomes. Internet access at multiple access points was evident (4 per cent) but infrequent.In February 2002, mobile phones (6 per cent) and digital television (5 per cent) wereproviding complementary access devices. 77 Nearly half of homes in the UK (46 per cent)were connected to the Internet and if a person owned a PC, it was very likely to beconnected to the Internet.

A ‘digital divide’ continues to persist in the UK. The population that is most affected isover 55 years of age and has the lowest socio-economic standing in terms of educationand income. In comparison to the average take-up for the population overall, this grouplags behind in terms of the percentage of homes with Internet access by one half of theproportion of the population that it represents.

Table 4 Demographic Distribution of Homes with Internet AccessDemographic % Homes with

Internet Access% of UK Population

55+ 16 32Lower Socio-economic groups Dand E.

14 28

Income up to £17.5K 25 50Source: Adapted from Oftel Residential Survey Q8Feb2002

Although adults in the UK over the age of 55 represent 32 per cent of the population,only 16 per cent have Internet access in their homes (see Table 4). This has not changedsince August 2000. For home Internet access to better reflect the populationdistribution, a change will be needed.

By 2005 some 67 per cent of the UK population is expected to be accessing the Internet,78 representing an 11 per cent growth rate from 27.3 m in 2002 to 40.8 m. This wouldrank UK Internet penetration as second highest in western Europe. However, Internetpenetration in the UK is also forecast to grow at a relatively slow rate (11 per cent), butfaster than the Nordic countries at 8 per cent. In 2001, the Nordic countries also had thehighest penetration rates and are expected to maintain this position in 2005 (78.2 percent).

17

Average Internet household usage time in the UK, as a measure of user intensity, isshowing signs of increasing. A small group of heavy users (8 per cent > 30 hours perweek) partly skewed average weekly usage upwards from 8 to 9 hours in February 2002.As user intensity increases, awareness of technologies that permit more advanced usagealso appears to increase. The longer an individual is on the Internet, the more likely heor she is to transact online. Households are also moving towards using fully un-meteredpackages (May 2001 - 7 per cent to February 2002 - 32 per cent). Internet serviceprovision in the UK residential market is becoming more concentrated, a developmentthat may influence access costs in the future. By February 2002 Freeserve had a 21 percent market share, BT a 20 per cent share, AOL a 17 per cent share, and NTL an 11 percent share.

Demand for broadband services such as asymmetric digital subscriber lines (ADSL) andcable modems is strengthening. Between November 2001 and February 2002, there wasa switch away from ISDN (9 to 3 per cent) towards ADSL/Cable Modems (7 to 8 percent) and the use of ordinary telephone line access (83 to 88 per cent). Price is animportant factor in stimulating broadband take-up. BT’s price reductions for wholesaleDSL products in April 2002 are filtering into the retail market. ADSL take-up byconsumers and small and medium-sized enterprises rose from 136,000 to 290,000subscribers over the six months to June 2002. Cable Modem subscribers increased from196,000 to 419,000 over the same period.

Western Europe experienced a substantial increase in ADSL subscribers during 2001 tonearly five million, of which 40 per cent were in Germany. In the US, with 1.5 millionnew ADSL lines, growth was lower than expected. The total number of ADSL linesreached 3.8 m in 2001. In Asia the leader is South Korea with over 4 m lines.79 Cableoffers an alternative to ADSL to more American consumers than it does to westernEuropeans. In the US, cable services accounted for 60 per cent of broadband users (5m) in 2001, but for only 28 per cent of western Europe’s users (2 m). Developments inthe cable sector are likely to make it easier to manage the quality of service and toincrease bandwidth and this should strengthen the prospects for cable operators in theUK. 80

The growth of demand for Internet access and use is affected by the regulatory treatmentof wholesale and retail pricing. Studies comparing differences in Internet access pricingin the European Union and the US indicate that price is a key defining factor ofconsumer demand.81

The UK has been at the centre of the ‘free’ Internet. Unlimited local call flat rates forInternet access were introduced by BT in the UK in June 2000. According to the ONSInternet Connectivity Index,82 as of April 2002, free access subscriptions were decliningas a proportion of total subscriptions at a rate nearly identical to increases in fixed ratesubscriptions for un-metered access. This indicates changing price sensitivities ordifferentiation in the access plans being offered, the later being a more likely explanation.Willingness to pay for Internet access coincides with a shift from dial-up towardspermanent Internet connections.83 This change is relatively new and the shift is small sofar. But this may be an early indicator of readiness among some users to move to higherconsumption levels that will drive demand for network capacity.84

Oftel research indicates that more intense Internet users seem to be willing to increasetheir spending in order to enjoy the added value of broadband. 85 The main added value

18

seems to be the ability to access the telephone and the Internet simultaneously. A July2002 report commissioned by the Department of Trade and Industry and the DigitalContent Forum (DCF) identifies price as the most important factor in driving broadbandtake-up. However, content development is also an important factor in significantlyexpanding broadband take-up beyond present levels. 86

Incentives will be needed to stimulate broadband product and service delivery. There isuncertainty about how the advertising, pay, and public service fee paying revenue modelswill compete.87 Increasingly ‘real’ interactivity, the use of personalisation tools andenhanced services for advertisers, and the growth of online banking and ordering, andinteractive games are expected to stimulate the market.

Demand for mobile devices combining functions such as the telephone, Personal DataAssistants (PDAs), and Global Positioning Systems (GPS) is also expected to stimulatemarket growth. ‘Always on’ services are likely to change the balance between work andleisure time and influence people’s mobility. The adoption of ‘smart home’ technologiesis also expected to expand as costs decline and devices become modular, expandable andup-gradable.88 Growing familiarity with electronic services will enhance skills andcompetencies. This should drive demand for new services and access to higher capacityelectronic networks.


Micro-level research in Europe suggests that mobile telephony users are incorporatingthis technology into their lives in many different ways. In the UK, in-depth researchsuggests that people associate the mobile phone with morality (with a moral economywhere use is related to concepts of the self that heighten awareness of moral obligations),greater efficiency, productivity, and independence, and a desire to aspire to the upper-middle class.89 In Finland, the rapid adoption of the mobile phone is perceived to bechallenging Finnish linguistic culture, self-images, and the characteristics of the socialenvironment.90

However, research on young people’s assimilation of new media suggests that the use ofmulti-channel television, the PC, and the Internet rarely radically changes their lifestyles.91

New media use does appear to affect the social environment by redefining private andpublic consumption patterns. The diversification of media forms and content alsoenables access to local and global experiences. Technology convergence seems to altertraditional social boundaries such as between home and work, entertainment andinformation, and education and leisure time. In some cases, the use of interactivetechnologies seems to blur the user’s experience of the ‘real’ and the ‘virtual’.92

Developments of this kind are expected to combine to increase demand for access toelectronic networks.

E-government and e-learning services are also expected to stimulate demand in theconsumer marketplace. A study covering 27 countries, including the UK, 93 indicates thatindividuals follow a progressive adoption curve. The majority of Internet users are‘information seekers’ (20 per cent). Another 9 per cent are ‘downloaders’ who printgovernment forms, 7 per cent are personal information providers and a further 6 percent are ‘transactors’ who are willing to make payments online. The UK is laggingbehind other European countries in moving citizens along this adoption curve. Safety(with respect to providing government with personal information or making payments)

19

was a concern for 64 per cent of those included in the survey. But ‘transactors’ (63 percent) and ‘non-users’ (62 per cent) had similar concerns for safety, suggesting that thisfactor may not continue to be a substantial barrier.

Evidence on barriers to the more extensive use of ICTs by individuals suggests thatseveral factors are important. An absence of need and interest; preferences for shoppingin person and seeing the product; security concerns about payments requiring credit carddetails; privacy concerns; and trust relating to receiving and returning goods boughtonline, are principal barriers to expanding use.94

In the UK, reasons for not accessing the Internet for personal use are shown in Figure 2.

Figure 2 Barriers to Personal Internet Use

0

10

20

30

40

50

60

70

80

90

100

Oct-00

Nov-00

Dec-00

Jan-0

1

Feb-0

1

Mar-01

Apr-01

May-01

Jun-0

1Ju

l-01

Aug-01

Sep-01

Oct-01

Nov-01

Dec-01

Jan-0

2

Feb-02

%

Irrelevant Complicated Access Problem

Data Source: ONS StatBase

The biggest barrier for non-users is the perceived ‘irrelevance’ of the Internet.‘Irrelevance’ is associated with non-users’ lack of interest. Some report feeling too old,not wanting to use it, not having ‘got round to it yet’, and having a poor opinion of theInternet. A ‘complicated’ assessment is associated with a lack of confidence and skills.‘Access problems’ are associated with lack of access to a computer, inability to affordaccess, lack of time, and with health problems that make access difficult.

The most frequent Internet user today is young, single, and in a higher socio-economicband. This user mainly accesses the Internet from a home PC to seek information and touse e-mail. This ‘average’ user is increasingly ordering or buying goods or services onlineand is as likely to be female as male. The least frequent Internet user is an olderindividual and from a lower socio-economic band.95

Current patterns of individual and household use of the Internet and other electronicnetworks illustrate that individual use is dynamic and fluid. However, some features ofnon-use seem likely to persist and to exclude some individuals from benefiting from e-services.

20


Table 5 provides a summary of the importance of the key factors – learning, cost, safetyand technology – for ICT use by individuals and households.

Table 5 Importance of Key Factors in ICT Use for Households/IndividualsFactors Government Firms Household/Individuals

Households/Individuals1

Learning

Cost

Safety

Technology

C2G: Taxprocedures

High

Medium

High

Low

C2B: PriceComparison

Medium

Medium

High

Medium

C2C: Auctions

High

Uncertain

Uncertain

Uncertain

1 Households/Individuals are denoted as ‘C’ referring to consumer in the OECD model.Source: Adapted from Coppel (2000), OECD Economics Department Working Paper.

C2G e-commerce is becoming an option for individuals in the UK but citizens andconsumers will need convincing that changing their mode of receiving governmentservices will benefit them. Enticing individuals onto the web requires a reduction in thecosts of learning new ways of accessing e-government services. Some evidence suggeststhat e-government service development is starting with services that add the least valuefrom the individual’s perspective. However, accumulating experience may persuadeindividuals to engage more intensely with these services. Citizen use of e-governmentservices as a means of enhancing democracy is in the experimental stage. Safety, in termsof privacy and secure transactions, is a high priority concern. Once people begin to useonline services, these concerns seem to decline. Individuals appear to be willing toexperiment when costs are reduced and when attractive content is available.

The limited evidence on the impacts of C2B e-commerce suggests that learning efforts needto be supplemented by cost reductions and secure transacting environments to stimulategrowth. Signals of security provided by respected brands are helpful, but a perceivedlack of relevance of ICT use persists among some people. In addition, learningopportunities need to be tailored to the specific levels of skill in user groups if they are tobe effective. A key difference in take-up between C2B and C2G services may be relatedto the voluntary versus involuntary nature of participation, but this requires furtherstudy.

C2C e-commerce is a relatively uncharted area. Further investigation is needed tounderstand how this segment will progress. There are some indications that consumersprefer to transact via intermediary firms rather than to enter into direct transactions withprivate individuals on line, at least for some goods and services.

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3.5 The Potential of ICT and its ImpactThere is a key message that applies across all three ICT user segments – firms, publicsector organisations, and households and individuals. The impacts of ICT use in termsof effectiveness and efficiency depend on social, economic, political, cultural,organisational factors. This makes it difficult to make clear statements about the impactof ICT investment on the economy as a whole. A recent study observes that:

The relationship between technological change and social transformation is nowacknowledged to be a complex one, and the simple notion of technological changeshaving social [and economic] effects, which in turn can be simply controlled byappropriate policies, has now been shown to be false. 96

Electronic networks are being used to reorganise time and space relationships. Thesenetworks offer greater data storage capacity, new opportunities for participation in theeconomy, and new types of interactions and uses of digital information.97

For private sector firms, ICT use (and access to electronic networks) enhances therelationships between firms with respect to products and services that they alreadyproduce. In some cases, firms can commercialise specific information assets by using thenew technologies. A major impact of the growth of e-business is that firms need to putnew learning processes in place. There are strong signs that investment in learning canenable firms to move more rapidly to higher rungs on the ‘e-adoption ladder’.

Value chains for products with a relatively fixed degree of value-added – as inautomobiles – are highly integrated and the scope for new forms of e-business is limited.But in sectors where there is scope for new products and services in the value chain –publishing and food – firms are moving more quickly to adopt e-business. This is likelyto stimulate demand for electronic networks. Most businesses in the UK are using basicforms of e-commerce. But even with narrowband connectivity, firms are experimentingwith new applications. Where firms invest in skills and competencies and introduce newe-business services, their assessments of the benefits in terms of effectiveness andefficiency tend to increase.

The biggest challenges for government are resistance to organisational change and the lackof perceived relevance of the new services. The cost of switching from off- to onlineservices is a key barrier for users of ICTs. This will need to be addressed to promotefaster progress on the ‘e-adoption ladder’. Technology does not feature as a majorbarrier. But greater ease of access and lower cost access to electronic networks are likelyto stimulate use of e-government services.

For households and individual users of ICTs, the adoption pathway is unclear. Very fewmicro-level studies (apart from the marketing field) examine ICT adoption and itsimpacts from the individual perspective. Most studies examine basic demographicinformation to indicate how ICT use impacts on people’s lives. There are manyhypotheses to investigate, but there is very little rigorous research so far.

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4 Policy and Regulatory Priorities

4.1 IntroductionMultiple factors account for differences in ICT diffusion rates and usage patterns amongprivate sector firms, public sector organisations, and households and individuals. Theeconomic impact of the spread of digital ICTs is influenced by many intervening factors.The most significant of these is the length of the learning curve needed to optimise thebenefits of ICT use. ‘Learning by doing’ to develop knowledge is essential. First handexperience is necessary to take full advantage of ICTs.98 This applies to the use ofelectronic networks and to all segments of users.

The micro-level evidence shows that an indirect relationship exists between ICTinvestment, increased connectivity, and the achievement of a critical mass in themarketplace. Users who move along the ‘e-adoption ladder’ are more likely to reportpositive economic and other socially related impacts.

The intention at the outset of this project was to use the analysis of the case studyevidence to highlight factors that appear to account for differences in the effective usemade of electronic networks by different types of company by size and by householdincome. With respect to companies, those sector level studies that have sought to selecta stratified sample of private sector firms, tend to reveal that size is not a key determinantof innovative capacity in the use of ICTs. Although there is some evidence that smallerfirms have a weaker skills base and fewer resources to invest in technology and humanresource development, there are illustrations of smaller firms that are moving as rapidlyas larger firms along the e-adoption ladder. The differentiating factor consistently iswillingness to invest in learning, awareness building and organisational change.

With respect to households, there are a few detailed case studies of household use ofICTs in the UK that were undertaken in the mid to late 1990s. These provide a complexpicture of the varied social uses of ICTs within single parent, elderly, and otherhousehold types. However, this work did not attempt to assess the effectiveness orefficiency of ICT use.99 More recently, surveys have been undertaken to examine thepenetration of ICTs into households differentiated by income level and other socio-demographic indicators. It can be said that lower-income households appear statisticallyto be somewhat heavier users of Internet access once they are connected. However, theevidence is not sufficiently robust to draw conclusions about the factors that may explainobserved differences in the aggregated data. While we are beginning to be able tomonitor types of ICT use and the intensity of use, there are no sufficiently large orconsistent samples of case studies that would provide explanations of key factorscontributing to effective use or enable an assessment of differentiated impacts at thehousehold level.

Our assessment of the evidence overall suggests that policy measures are needed toreinforce the demand side of the ICT market. Such measures are needed to underpin theUK government’s ambition to achieve a strongly knowledge-driven economy. Priorityareas include:

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• Learning for skills and competency development aimed at breaking downentrenched attitudes and modes of behaviour that lead to resistance to ICT use.

• Reducing constraints inhibiting a fair and efficient e-service delivery market fromevolving. These constraints relate to access to learning as much as to access totechnology and ability to pay.

• Monitoring economic impact as a result of ICT investment using methods thatcapture the micro-level experiences of users.

4.2 Learning for Skills and Competency DevelopmentThe link between ICT investment and its impact on economic growth is indirect. Skillsand competency development through learning are central to increasing the rate of ICT(and electronic network) adoption, and to their effective and efficient use. Policies aimedat promoting a broader distribution of the skills base are likely to strengthen ICTdemand.

The costs of transition to a knowledge-driven economy are considerable. These costs arenearly always underestimated and they largely relate to learning. The costs oforganisational change in the public and private sectors, and for individual users to changebehaviour to adapt to online interactions, are significant. Micro-level research repeatedlyshows that large numbers of potential ICT users resist these new opportunities. This isbecause of perceived threats to established routines and customs, and to existingpreferences for work organisation and the use of leisure time. However, the evidencealso suggests that, as skills and competencies develop, there is a reduction in theseperceived threats.

Learning involves a complex process of knowledge accumulation. This leads to changethat shapes the effectiveness and the efficiency of ICT use. 100 This is a key differentiatorof the pathway towards greater ICT use and its positive economic impact.Understanding how new routines, skills, and competencies develop is essential to anexplanation of variations in the effectiveness and efficiency of use of ICTs, includingelectronic networks.101

Research suggests that variations in ICT impacts across countries and sectors areassociated with local learning opportunities, e.g. in the household, private sector firm orpublic sector organisation.102 For example, an analysis of the economic impact of ICTsin Norway found that, ‘…insofar as ICTs are important aspects of innovation activities,the distribution of ICT competencies is of crucial importance to understand actual and futureinnovative capability’ (emphasis added).103 Another study shows that technologies, suchas mobile telecommunications, are associated with ‘learning regimes’ that must be inplace for the successful rollout and take-up of services. 104

Investment in learning is crucial. Policy action is important because deficits in the skilland competency base relative to other countries will slow the use of ICTs in the UK andgive rise to ineffective and inefficient usage patterns.

Learning opportunities are particularly important for::

24

• Encouraging the ‘peer-to-peer’ model of content creation and exchange,alongside the commercial media and digital information industry’s developmentof content, in order to enable users to gain experience in the use of ICTs.

• Promoting measures to build trust in the use of ICTs including measures toassure users about privacy protection and the security of networks. This matterneeds attention even as e-commerce legislation is introduced in the UK.105

• Reducing barriers to the effective management of intellectual property rights indigital information especially for smaller firms, and monitoring the balancebetween intellectual property rights protection and the maintenance of opendigital spaces on the Internet.

4.3 Reducing Constraints on E-service Delivery MarketsTo promote optimal access to ICTs, regulation is needed to encourage competitive entryin some segments of the market. Encouraging universal access to public networks andlimiting discriminatory and unfair restrictions on network access and usage will continue topresent issues for regulators.

An important role for policy is to monitor opportunities to move users onto new rungson the ‘e-adoption ladder’. The new Office of Communications (OFCOM) will be well-positioned to signal changes in ICT usage patterns on the basis of its research and itsfamiliarity with consumer price sensitivities. OFCOM will have an overview of mostsegments of the market for electronic networks (and content). From its position, theregulatory agency can offer informed views of changing patterns of demand that are notinfluenced by vested interests in the segments of the market.

In addition, regulation continues to be needed to monitor interconnection costs betweenalternative networks. The growth of mobile data and multimedia service markets is likelyto lead to more complex interconnection models that take account of increases inbandwidth usage. 106 Demand for high bandwidth services will be sensitive to the effectsof interconnection models on retail prices.

Self-regulation by the Internet service providers may not be sufficient in the future. Asan OECD report suggests, ‘the Internet, by its nature, does not automatically lead tomore openness and competition’.107 There may be a role for formal regulation ofInternet interconnection and peering arrangements and this is not a content regulationissue.

In addition, interconnectivity between the Internet and television is a feature of thefuture of commercial digital television in the UK.108 Next generation set top boxes will bepowerful and broadcasters are seeking additional revenue streams.109 Emerging marketsare likely to be highly price sensitive,110 and further development of interactive televisionis likely to pose issues for regulation to ensure that public service broadcasting remainsviable.

Citizens and consumers will be marginalised if they do not attract e-service providersbecause of their geographic location or socio-demographic position. Steps bygovernment to require universal access to electronic (broadband) networks throughregulation are not regarded as appropriate. However, expanding access to electronicnetworks is a means of providing opportunities for ICT-related learning. This is

25

important for those who will otherwise lag behind on the learning curve and, therefore,will be excluded from the benefits of e-services.

Policy action need not be justified by evidence of market failure. Micro-level evidence onICT use indicates that system failures may be holding back movement of some ICT userson the ‘e-adoption ladder’.111 If a component of the ICT system (human andtechnological) is missing or is not interacting well with other components, the economicimpact of ICT investment is likely to be reduced.

There is a need to examine system failures and to co-ordinate the use of regulatory andnon-regulatory measures to strengthen opportunities for learning that will stimulatedemand for ICTs. There are signs of system failure in the human and organisational partsof the ICT system in the UK. The micro-level evidence suggests that there areweaknesses in skills and competency building that are contributing to user resistance togreater and more effective ICT use.

4.4 Monitoring and Assessing ICT Economic ImpactsImproved indicators of ICT impacts are being developed partly through the work of theOffice of the E-Envoy and ONS. But there is a gap in the evidence base at the micro-level. Systematic and methodologically rigorous case studies can reveal how people areresponding to digital opportunities and the new e-services. They can provide insightsinto the learning process and the barriers and drivers of change in ICT consumptionpatterns, factors that are not captured by macro-level research techniques.

Detailed case studies of user perceptions and experiences can highlight key changes andpromote greater awareness and responsiveness by ICT suppliers. Existing case studiesuse inconsistent methodologies. They provide snapshots of current practice. They areundertaken mainly at the industry sector level or at the functional level in government.Research has barely started to reveal how people are using ICTs in their homes andworkplaces.

Encouraging and supporting new efforts to undertake systematic and methodologicallysound micro-level studies over time of ICT use and its economic (and social) impact willenable this evidence gap to be addressed.

5 Conclusion

Government policy and regulation have roles to play in ensuring that investment in ICTs(and electronic networks) leads to the expected productivity gains in the UK economy.112

The priorities – based on an assessment of the micro-level evidence are:113

1. Investment in learning for skill and competency development,

2. Initiatives to stimulate digital content and information production especiallyusing a ‘peer to peer’ model, and

3. Building confidence in the security of networks.

There is evidence of a dynamic, self-reinforcing cycle where learning and experiencestimulate demand for e-services. Because of the system characteristics of ICTs this can

26

encourage investment in the ICT infrastructure. As Greg Spencer, consultant toBroadband Futures in the UK puts it, ‘just putting in wires and offering cheap rates isn’tenough. People have to have skills to create and use content, not just the technologyitself’.114

Research at the micro-level cannot address all the factors that impact on the effectivenessand efficiency of ICT use. However, it can complement and inform macro-economicanalysis. Movement along the diffusion pathway involves choices by citizens, consumers,workers and their employers, and policy makers. These choices impact on the economyand, indirectly, on the take-up and use of ICTs.

Progress towards a knowledge-driven economy is the agreed goal. But the alternativesfacing private sector firms, public sector organisations and individuals need to be keptunder constant discussion. A shared vision of the knowledge-driven economy can helpto forge better co-ordinated policy and regulatory action, consistent with the ICTdiffusion pathway that is most highly socially and economically valued.

27

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Annex A: ICT Diffusion and Growth Rates

Investment in network infrastructure and spending on information technology andtelecommunication equipment in 2001 led to network infrastructure penetration inwestern Europe that was less pervasive than in the US, with the exception of mobilecommunications. Some of the differences in the patterns of diffusion between thenetwork infrastructures in western Europe and the US are shown in Figure 3 as of2001.115

Figure 3 Network Infrastructures in Western Europe vs. United States, 2001

(1) per 100 inhabitants, (2) per 100 households‚ (3) July 2001; * EU 15, Switzerland and Norway

157

75

47

32

65

35

55

5

27 28

82

0

10

20

30

40

50

60

70

80

90

100

ISDN (1)

Mobile subscriptions (1)

Cable TV (2)

Internet user (1)

Internet hosts (1),(3)

PC (1)

Western Europe* US

Source: EITO (2002).

Figure 4 below shows recent and projected growth in the European informationtechnology market valued at 341 bn Euro in 2002. The growth rate projected for 2003suggests that the UK will maintain its position.

Figure 5 below suggests that growth in the market in 2003 for the underlyingtelecommunication infrastructure in the UK is not likely to be as healthy as elsewhere inEurope. However, it is expected to grow faster than in the preceding year.

35

Figure 4 Western European IT Market Annual Growth, 2001-2003 (%)

5.55.9

9.3

1.2

2.9

7.47.8

6.8

10.2

5.8

7.1

10.3

6.16.6

9.4

3.9

5.1

8.8

0

2

4

6

8

10

12

France Germany Italy UK Spain Western Europe

2001 2002 2003

Market value 2002: 341 billion Euro


Figure 5 Western European Telecom Market Annual Growth, 2001-2003 (%)

Market value 2002: 337 billion Euro

8,9

5,7 5,4 4,7

5,6

9,1

5,4

5,0

6,26,7

4,0

5,6

4,2

6,86,1

6,4

5,8

6,8

0

2

4

6

8

10

France Germany Italy UK Spain Western Europe

2001 2002 2003


36

Annex B: Reported Impacts of E-Commerce at the Sector Level

Automobiles: ICTs are being used to provide car trade portals linked to dealers. The costof selling through the Internet (including advertising costs) may amount to 20% of thecost of traditional selling but these potential benefits are not yet being experienced bycustomers.116

Banking Industry: Online banking is not yet displacing traditional banking and complexalliances of service providers are emerging with some restructuring of the relationshipsbetween wholesale and retail services.117 For investment banks, there is a four stageprocess of ICT adoption which can enable banks to achieve the benefits of theirinvestment through the ‘interaction of the technical ability to produce at low unit cost,and the managerial ability to control and co-ordinate resources’. 118

Book Publishing: ICT investment is enabling new business models for digital publishingand distribution. On-demand publishing is undermining the sector’s traditionalorganisation and there are signs both of direct publisher to end-customer e-services thatbypass retailers (disintermediation) and of new agents entering the value chain(reintermediation).119

Insurance Services: In this market in their search for efficiency gains ICT developers oftenfail to develop shared understandings of the use of ICT systems. This gives rise toconflicts and misunderstandings that can lead to failures of system implementation.120

Logistics: ICTs have been implemented in response to problems rather than as strategictools. In the latter case, they can lead to improved performance monitoring, profitmargin maintenance, and stronger quality control.121

Music Industry: The co-existence of off-line retailing, online retailing, and direct onlinedistribution is occurring. Various service packaging companies (fulfilment companies)are negotiating with record companies to manage the ordering and delivery process.122

‘Non-Knowledge Based Services’ (construction, security services, cleaning services, retail andwholesale, transport, and hotels and restaurants). ICT use seems to break down olddivisions between service categories helping to achieve coordination of differentcontractors to deliver on complex projects.123

Pharmaceuticals Distribution: ICTs are being used to bypass some established distributionservices, but the major distributors see these as fragmented approaches with little effecton their established structures.124

Postal Services: E-commerce is impacting on volumes leading to smaller more frequentorders, decreasing volumes due to e-substitution of letters but increases in direct physicalmail marketing and in heavy weight items. Post companies are expected to becomeintegrated operators and this may lead to reduced competition.125

Retail Distribution: ICTs are being used to rationalise business processes and to shifttowards a more demand driven organisation of supply.126

37

Textiles-Clothing: Strong management vision is leading to efficiency gains in e-procurement and product, process and relational innovations which benefit some sub-segments of the market depending on the location of suppliers and their previous use ofelectronic data interchange systems.127

Tourism: Virtual operators are complementary to consolidated physical companies thatare packaging holidays. There are compatibility standards problems between systems andoperators in the value chain which reduce the magnitude of the potential impacts.128

See also OECD (1999) and (2000) for additional sector level analysis of e-commerceimpacts.

38

Notes

* Professor Robin Mansell ([email protected]) holds the Dixons Chair in New Media and the

Internet in the Interdepartmental Programme in Media and Communications; Lynne Nikolychuk([email protected]) is a PhD candidate in the Interdisciplinary Institute of Management,both at the London School of Economics and Political Science.

1 Renamed the Prime Minister’s Strategy Unit, July 2002.

2 See Affuso and Waverman (2002).

3 UK Online Strategy, available at http://www.e-envoy.gov.uk/ukonline/anreport2001/downloads/ar2sum.pdf accessed 3 July 2002.

4 This definition includes traditional telephone and cable networks, data networks for Internettraffic, mobile phone networks, wireless data networks and interactive television. It excludestraditional broadcast television, non-interactive digital television, and broadcast radio as these donot offer a direct return path for the end user, see PIU Review of Electronic Networks: WorkingDraft, July 2002, s. 1.1.3. This definition is consistent with the UK Draft Communications Bill ofMay 2002 which defines electronic communications networks, services and associated facilities.The draft legislation is being put in place for the Office of Communications which will alsoinclude content services within its remit.

5 The definition of ICT varies considerably. The OECD definition encompasses markets forhardware, packaged software and services as well as semiconductors. The ICT industry includesmanufacturing (office, computing and accounting equipment); Radio, TV and communicationequipment – and ICT services including communications services rendered to the public by post,wire or radio and services for the exchange or recording of messages,see OECD Information Technology Outlook 2002, Paris, summary at:http://www.oecd.org/pdf/M00030000/M00030907.pdf accessed 7 August 02.

6 In contrast, at least at the level of the firm in the US, there have been some attempts to measureproductivity on a systematic basis, see Brynjolfsson and Hitt (1996); Brynjolfsson and Yang(1996); and Brynjolfsson and Kahin (2002).

7 Mansell and Steinmueller (2000).

8 ICT spending refers to revenues paid to primary vendors and distribution channels for officemachines, data processing systems, software and services by the final customer. Final customersinclude corporations, households, schools and government agencies. ICT investment refers tobusiness sector investment in hardware, software, and communications equipment. It iscalculated by subtracting household and government spending from total spending, see Daveri(2001).

9 Daveri (2001).

10 Differences in ICT performance between the US and Europe may be attributable to thedifferences in the use of price index methodologies, see Wyckoff (1995) and Barbet and Coutinet(2001).

11 The European Commission funded IST Project SIBIS, IST–2000-26276 SIBIS-Workpackage 4:eEurope Evaluation & Benchmarking Report 2001, available at:http://www.sibis-en.org/sibis/files/report_eeae.pdf accessed 3 July 2002; and the EuropeanCommission funded TERRA-2000 project, at http://www.terra-2000.org/ accessed 16 July 2002.

12 For example, Selhofer and Mayringer (2001).

13 See relevant ONS articles at:http://www.statistics.gov.uk/themes/economy/articles/neweconomy.asp accessed 6 July 2002;ONS First Release Internet Access: Households and Individuals 2 July 2002 at:http://www.statistics.gov.uk/pdfdir/intacc0702.pdf accessed 7 July 2002; Oftel Consumers’ useof Internet Q8 February 2002 at: http://www.oftel.gov.uk/consumer/research/con_int.htm

39

accessed 5 July 2002; Nielen/NetRatings European Newsletter at: http://www.nielsen-netratings.com/newsletter/newdesign/global/global.htm accessed 5 July 2002; and ONS Cross-Sectional Data at: http://www.statistics.gov.uk/statbase/esdataset.asp?More=Y accessed 10 June2002.

14 This is supported by Coyle and Quah (2002) in their report.

15 Fagerberg et al. (1999), p. 235.


17 Technology diffusion studies draw upon sociological and economic analysis, see Rogers (1983)and Stoneman (1983).

18 Andersen et al. (2000).

19 Katz and Shapiro (1985).

20 OECD (2002a), p. 11.

21 Millar (2001).

22 Millar (2001).

23 See Fielding (2002); Neal and Bennett (2001).

24 The definitions are: self-employed (regular) teleworkers - either have a main workplace outsidetheir home (e.g. at their client(s)) but spend at least one full working day at home; or are based ina SOHO (small office home office) at home and regularly use ICTs to collaborate with partnersand stay in touch with customers. Supplementary teleworkers are all those who spend less thanone full working day at home, Garies (2001).

25 ECaTT 1999 (n=727) cited in Gareis (2001) and Gareis and Mentrup (2001).

26 Internet usage intensity generally refers to numbers of Internet hosts as a proportion of thepopulation or to other measures of the diffusion of PCs. Estimates of the actual time spentmaking use of the Internet and other ICTs and measures of how effective or efficient such use isare only beginning to be developed.

27 Millar (2002a, b).

28 Punie et al. (2002), p. 4.

29 These include the World Trade Organization TRIPS agreement and initiatives by WorldIntellectual Property Organization including the Copyright Treaty and the Performances andPhonograms Treaty.

30 European Commission (2001).

31 Tang (1998).


33 Steinmueller (2000).

34 For instance, Livingstone and Bovill’s (1999) comparative study of children’s changing mediaenvironment in Europe and Turow and Ribak’s (2002) comparative work on the use of theInternet in the US and Israel.

35 EITO (2000), p. 230.

36 For instance, Hawkins (2001a, b); Hawkins and Verhoest (2002 forthcoming); Mansell and Nioras(2001).

37 The difficulties in explaining differences in diffusion and usage patterns at the sector level aredocumented in the literature. As far as possible our assessment of impacts is based on firm levelstudies, see also Boden and Miles (2000) for an analysis of key determinants of the growth ofservices in the knowledge-based economy.

38 See ONS, ‘First e-commerce survey of business’, 15 May 2001. A transaction is deemed to be an‘e-commerce’ transaction if the order is placed on the Internet irrespective of the mode ofpayment or delivery. These figures exclude the value of intra-company transfers and transactions.

40

Much of the data and value associated with these flows is supported by private networks ofcorporations and their value is enormous, but is not accounted for in the official statistics onpublic electronic networks including the public Internet.

39 See OECD at: http://www.oecd.org/sti/consumer-policy accessed 10 June 2002.

40 See http://www.EITO.com accessed 8 July 2002.

41 By 2005, Germany’s B2B market is forecast to grow 77 per cent to �389 m; the B2C market isforecast to grow 83 per cent to �58.5 m.

42 This survey is to be published during 2002. The ‘e-adoption ladder’ anticipates firms’ progressthrough various development stages. See Chapter 2 in ‘Business in the Information Age:International Benchmarking Report 2001’ at:http://www.ukonlineforbusines.gov.uk/main/resources/publication-htm/bench2001/pdf/ch9.pdf accessed 4 July 2002.

43 Based on a discussion with ONS representatives in June 2002.

44 Acknowledgement to Stuart Hillston at Interforum for providing these figures.

45 Statistics available at: http://www.sbs.gov.uk/press/news90.asp accessed 5 August 2002.

46 The Department of Trade and Industry (DTI) is attempting to disaggregate sector level impactsacross a number of studies undertaken with PriceWaterhouseCoopers (PWC). See also Clegg(2001); and Hawkins and Prencipe (2000).

47 OECD (2001a), pp, 6 and 33.

48 Mansell et al. (2000); Mansell (2001).

49 Nikolychuk (1995).

50 De Berranger et al. (2001).

51 OECD (STI/ICCP) at: http://www.oecd.org/sti/consumer-policy accessed 4 July 2002.

52 Asch (2001).

53 Charwdhry et al. (2002); Chaston (2001).

54 Raijas and Tuunainen (2001).

55 Mansell and Nioras (2001).

56 Hawkins and Verhoest (forthcoming 2002), Ch. 4, pp. 4.

57 Hawkins and Verhoest (forthcoming 2002).

58 Paré (2002 forthcoming).

59 These themes are derived by grouping common issues reported in the case studies as giving riseto positive or negative impacts of ICTs

60 United Nations (2001).

61 United Nations (2001), p. 5.

62 Siegried (2001).

63 Feindt et al. (2001).

64 NAO (2002a).

65 NAO (2002b), p. 3.

66 EITO (2002), number of respondents not provided.

67 NAO Report (2002), p.17-42.

68 Coleman and Gøtze (2000).

69 Pratchett (1999), p. 1.

70 Kinder (2002).

41

71 Hudson (1999).

72 Silcock (2001).

73 Silcock (2001).

74 Siegried (2001).

75 NAO (2002).

76 Hudson (1999), p. 330.

77 Oftel Consumers’ use of Internet Q8 February 2002 at:http://www.oftel.gov.uk/consumer/research/con_int.htm accessed 5 July 2002Oftel (February2002).

78 Web users defined as individuals who access the web at least once every three months at:IDATE, http://www.idate.fr accessed 1 July 2002.

79 IDATE (2002a).

80 IDATE (2002b).

81 One analysis of ‘flat rates’ at the retail and wholesale levels indicates that un-meteredinterconnection does not necessarily encourage the take-up of flat rate users, but that itencourages innovative pricing strategies that increase demand for access, see Bourreau (2001).

82 ONS Internet Connectivity Index: April 2002 at:http://www.statistics.gov.uk/themes/economy/articles/e_commerce.asp#internet accessed 5July 2002.

83 Year on year growth for dial-up connections was 12 per cent versus 427.8 per cent for permanentconnections. As of April 2002, 95.4 per cent of UK Internet connections were dial-up and 4.6per cent were permanent.

84 The data do not distinguish between business and non-business Internet connections.

85 Oftel (2002) report on Consumer perceptions at:http://www.oftel.gov.uk/publications/research/2002/bban0102.pdf accessed 15 July 2002.

86 Report summary by Z. Trinder-Widdess (2002) ‘Study finds content will drive broadband uptake’Periodical Publishers Association at: http://www.ppa.co.uk/news/2002/07/01broadband.htmaccessed 15 July 2002.

87 See WAN (2001), Punie et al. (2002) citing European Journalism Centre’s media news archive;and IDATE at www.idate.fr accessed 30 June 02.

88 Gann et al. (1999).

89 Nafus and Tracey (2002), p. 215.

90 Katz and Aakhus (2002).

91 Livingstone and Bovill (1999), p. 49.

92 Livingstone (2002), p. 20-21.

93 TaylorNelsonSofres_GovernmentOnline_Nov2001.pdf available at http://tnsofres.com, notaccessed directly. Information provided by the Office of the E-Envoy.

94 ONS Dataset Display– Cross-Sectional at:http://www.statistics.gov.uk/statbase/xsdataset.asp?More=Y accessed at 10 June 2002 andOECD (2002).

95 ONS Dataset Display– Cross-Sectional at:http://www.statistics.gov.uk/statbase/xsdataset.asp?More=Y accessed at 10 June 2002.

96 Ducatel et al. (2000), p. 9.

97 Slevin (2000), p. 70; and Tuomi (2001).

98 Johnson et al. (2002).

42

99 See Haddon (1998); Haddon and Silverstone (1994); and Haddon and Silverstone (1996).

100 For instance, Cowan and Foray (1997); David (2001).

101 Nelson and Winter (1982).

102 Johnson et al. (2002).

103 Smith (2001). p. 33-4.

104 Fransman (2001).

105 In August 2002 the Department of Trade and Industry issued e-commerce regulations in line withthe European Union Directive in this area.

106 Samarajiva et al. (2001).

107 OECD (2001b), p. 34.

108 Tadayoni (2001).

109 See, for example, Granada Television’s interest in bidding for iTV contracts to providegovernment services, NewMediaAge, 30 May 2002, p. 1.

110 Kaiser et al. (2000).

111 This argument is related to the problems caused by the relative immaturity and maturity ofdifferent components of the ICT system. It does not rely on a finding of exploitation ofsignificant market power or market failure analysis. However, in the skills and learning area it ispossible that deficiencies could be attributed to a market failure due to information asymmetriesand weak incentives to create new knowledge in the public or private sectors. This possibility isnot explored here since the evidence of system failure with regard to the learning process andICT use is strong in the case study literature.

112 EITO (2002) and see OECD (2002b).

113 See Umino (2002) for an OECD statement on priorities for government policy in this area: 1)promote broadband access; 2) harmonise regulations for broadband deployment and createincentives for investment; 3) encourage compatible standards; 4) promote digital broadcastingand media content production; and 5) invest in ICT-based education and e-learning for new skillsand jobs.

114 Harding (2002), p. 37.

115 See also OECD (2000b) on Measuring the ICT Sector.

116 Charbit et al. (2001).

117 De Munck et al. (2001).

118 Nightingale and Poll (2000), p. 251.

119 OECD (2001a).

120 Barrett (1999); Rae (2002).

121 Dantuma and Hawkins (2001).

122 Verhoest et al. (2001).

123 Ducatel (2001).

124 OECD (2001a).

125 Smit (2002).

126 OECD (2001a).

127 Bianchi et al. (2001); Feindt (2001).

128 Ministerio de Ciencia y Technologia (2001).

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